How to reduce the odds of a tax audit

Maryland residents and Americans across the country have an average odds of 1 in 160 of having their tax returns audited. The number increases to 1 in 23 for those who make over $1 million a year. Those who make less than $200,000 have a lower than average chance of being audited. Regardless of how much a person makes, there are things that he or she can do to reduce the odds of further IRS scrutiny.

Those who file a Schedule C should be careful to document business expenses and differentiate between those and personal expenses. If a person donates assets or money to charity, those donations should also look reasonable. If a donation is worth more than $5,000, an appraisal is often required prior to making it. A receipt should be kept on file if a donation is valued at $250 or more.

If a person receives rental income, it is important to understand how to document it on a tax return. For example, if a vacation rental was used by the owner for more than 14 days in a calendar year, it may impact how any income derived from it is treated for tax purposes. When depreciating equipment, the depreciation has to be spread out over several years if it was put into service prior to Sept. 28.

In the event that the IRS discovers a taxpayer error, it could result in an audit. In most cases, an audit generally asks for more information to be sent by mail or for an error to be corrected. Those who are unsure about how to proceed can contact the IRS for more information or contact an attorney. Legal counsel may correspond with the IRS on a taxpayer's behalf if the taxpayer so chooses.

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